Stapleton Announces ‘PERA Reform Principles’ to Guide 2018 Talks

FOR IMMEDIATE RELEASE

Stapleton Announces ‘PERA Reform Principles’ to Guide 2018 Talks

DENVER – Dec. 6, 2017 – Colorado Treasurer Walker Stapleton rolled out a set of guidelines for lawmakers attempting to tackle the massive unfunded liability that is plaguing our state pension, the Public Employee Retirement Association (PERA).

For years, Stapleton has been speaking about the consequences of ignoring this $32 billion problem, predicting that the state could face a potential negative outlook and the eventual downgrade of its credit. Just last month, his prediction came true. On Nov. 16, Standard & Poor’s announced, for the first time, a negative outlook for Colorado primarily because of the troubles PERA is facing.

Illinois found itself on a similar path and continued to ignore the problem. It festered for so long that the state pension’s unfunded liability now totals more than $250 billion. As a result, Illinois is on track to become the first U.S. state to have its credit rating downgraded to "junk" status. Colorado isn’t that bad, yet. However, if real reform isn’t passed to fix PERA, S&P warns that a downgrade could be next.

“PERA’s leadership and the board have been underselling the problem to members for years, and they have never been fully transparent with their numbers,” Stapleton said. “They just now want to discuss this, but only on their terms, and that just doesn’t work for me. So, I’m releasing my own ‘PERA Reform Principles’ in the hopes that lawmakers working on this issue will be able to use this as a litmus test for any plan backed by PERA’s incompetent leadership.”

Stapleton added: “This is about protecting the retirement of 500,000-plus public workers, not protecting the job of PERA’s CEO.”

PERA Reform Principles

1.Any reform must be based on a realistic rate of return of 5 percent to 5.5 percent.

Currently, PERA assumes a 7.25 percent rate of return, and this is an unrealistic expectation. Colorado PERA and pension systems across the country have found themselves in the red because of unrealistic expectations on investment performance. It is time we start funding the defined benefit plan based on a realistic rate of return. We should start with basing reforms on the Government Accounting Standards Board (GASB) set rate of return.

2.Taxpayers have done their part already, no more taxpayer bailouts of PERA.

Anything that increases taxpayer (i.e. employer) contributions is a non-starter. This already happened with Senate Bill 1 in 2010. And by 2018, many state agencies and schools will be contributing nearly 21 percent of their total payroll to PERA. That is an outrageous amount and money that should be going into the classrooms, not backfilling an unsustainable pension system.

3.Provide real retirement options.

PERA touts its defined contribution plan, however, this plan is only offered to a relatively small group of state division employees hired in the mid-2000s. It is time we offer this option to all public workers and give them a choice in their own retirement future.

4.Salary spiking has to stop.

Payouts should be based on the last ten years of service, not the highest paid three years.

5.We have to get real about retirement age.

Currently, Social Security retirement age is based on a sliding scale (depending on your birth year) starting at 65 and moving up to 67. By comparison, the PERA retirement age is between 58 and 60 for full benefits. This doesn’t work. PERA reform must bring the retirement age more in line with Social Security for people who are new and recent hires.

6.Cost of living adjustments (COLAs) have to be part of the conversation and should never outpace inflation.

The COLA has been as high as 3.5 percent in the past, far outpacing the rate of inflation, which is below 2 percent. The COLA should be an actual adjustment for the cost of living, not an automatic raise year-over-year.